Who takes out Payday Loans?

With an increasing amount of scrutinization of Payday Loans by Federal authorities, an interesting pattern paints itself; more people are placing their trust in short term loan companies. The trend of short term loan companies primarily started out from the U.S. in the early and mid- 2000s, however, a number of similar companies have popped up into this field across the world. These types of loans act as a godsend to the people who cannot secure a loan through the regular channel of banks.

With the boom of Payday lenders over the course of recent years, various agencies and companies have been busy compiling data to analyze the market to understand how borrowers are utilizing this sector. Although, the data would differ from country to country depending upon a number of local and regional circumstances, the primary indication points towards that the majority of borrowers are in the working age range. This characteristic seems common among most of the data collected by analyzers, regardless of national origin. A brief breakdown of the categories of the demographics can be illustrated here:

Age:

According to surveys conducted by Pew of the American public, majority of the payday borrowers were in the age bracket of 25 to 44 years old. The highest bracket of people taking out these types of loans were in between 25- 29 years old and formed up to 9% of total borrowers. They were followed by 30- 34 year olds who added up to 8% of the total.

This data matched that of Britain, where about half of the Payday borrowers made up the age bracket of 25- 44 years old. This consistency in age groups in two completely different countries is generally an indicator of similar lifestyles and spending culture among the same age groups.

Gender:

The gender difference between male and female borrowers from Payday loans in the UK are slight, according to data collected by the Citizen’s Advice Bureau. With 53% male and 47% female borrowers, the division between the two seems to be more or less split down the middle. However, information gathered in 2015 by a large lending company in the U.S. showed that most of their customers were female. With a 67% female and 33% male split between borrowers, it paints a very different picture compared to the data from the UK. However, this data does not necessarily form the entire picture of the Payday borrowers in the U.S., it only shows the gender ratio of the company’s customers. Whilst, according to a recent study by Pew, the majority of short- term borrowers are indeed female at 52%, the gender ratio in general, is not as starkly askew as reported by the lending company.

Income Groups:

According to a 2015 Pew survey, the largest borrowers belonged to a household income bracket of £30,000 to £60,000. This bracket can be further broken down to see that there are three times as many borrowers who earn less than £40,000, showing that the likelihood of taking out a short- term loan was inversely proportional to the level of a household’s income. Meaning the less a household is earning, the more likely is it to take out a loan.

The largest group of households that take out a Payday loan has an average salary between £15,000 and £25,000. The second largest are the households that earn less than £25,000 and more than £15,000. This correspondence between financial difficulty and taking out a short- term loan is predictable and could be a possible link with the next category.

Education:

Most of the borrowers tend to be from a lower income group and, as reported by a London- based financial advisor company, don’t have an advanced education. Out of the 5.5% of all American who took out a loan, 7% had some high school education. Borrowers who have had some college education also make up 7% of the 12 million adults who took out a short- term loan last year.

Dependents:

This sub section that categorizes borrowers depends upon whether or not the individual (or couple) have any dependents, like children or parents that they tend to. In the U.S., 8% of parents have taken out a loan from a Payday lender compared to 5% of non-parents who have a dependent. This rate is about the same as reported by the U.K.s Citizen’s Advice Bureau last year, with a percentage of 12% households that take out a short- term loan with combined dependents.

As can be summarized by the data, Payday loans have positioned themselves as a safety net for household that struggle to make end meet and are not able to, or not willing to contact a bank for a loan. An increasing number of lenders are aligning themselves with financial litigations, causing borrowers to place a greater amount of faith in them.